Is the worm turning?

Well, for the first time in recent memory, the US employment situation report came out more or less in line with the reported market consensus. While nonfarm payrolls were slightly weaker than expected at 88k, the 4.5% unemployment rate was a "low" one at 4.457%. Macro Man isn't prepared to countenance the notion, popular in certain dark corners of the blogosphere, that these numbers are somehow massaged by corrupt bureaucrats for the benefit of the administration, and that the underlying situation is actually much, much worse.

What is curious, however, is that household employment dropped 468k, its steepest decline since November 2002. This has sent the six month trend sharply lower, belatedly and emphatically validating the deceleration in nonfarm payrolls observed over the past two years. Now, the household figures are clearly noisy, as the chart below illustrates. Nevertheless, the sharp downturn in household employment growth is consistent with that seen both at the last recession and during the prior mid-cycle pause in 1995. Coming on the heels of surprisingly strong PMI and orders reports, it suggests that the US economy remains in a period of churn, where the data flow is likely to be inconsistent. Will it be sufficient to cajole the Fed into easing? Probably not, which is one reason the bond market reaction has been so sluggish. It does, however, suggest that the risk asset love in is likely to continue- a significant point for Macro Man, given his short SPM7 call position. He therefore sells €20 million EUR/TRY at 1.8360 spot basis (1.8568 to June 4.) The worm may have turned for the labour market...but that would just bring it into line with where it perhaps should have been in the first place.